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determine the relevant (after-tax) cash inflow each year of project operation? Sherry Li Inc. purchased a $650,000 machine to manufacture computer chips. Li expects to




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determine the relevant (after-tax) cash inflow each year of project operation?

Sherry Li Inc. purchased a $650,000 machine to manufacture computer chips. Li expects to sell all it can manufacture in the next 10 years. Li has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The machine is expected to have a 10-year useful life with no salvage value. Li uses straight-line depreciation and a 10% discount rate in evaluating capital investments. Assume, for simplicity, that MACRS depreciation rules do not apply. The projected pretax operating cash inflows are as follows: Year 1 Pretax Cash Inflow $ 65,000 Year Pretax Cash Inflow 6 $300,000 2 80,000 7 270,000 3 120,000 8 240,000 4 200,000 9 120,000 5 240,000 10 80,000

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